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Strip sport - stalking the elusive whale

May 29, 2001 10:04 AM

Where have all the high rollers gone?

Baccarat win - the bellwether of high-end play - was down 12.6 percent
on the Las Vegas Strip in the 12 months that ended in February, compared with the year
before. At the casinos that cater to big-time gamblers, the largest casinos, defined by
state statisticians as those with annual table revenues in excess of $72 million, baccarat
win was down 12.07 percent.

A look at betting volume, or drop, is even more telling. Figures
compiled by the investment firm UBS Warburg show baccarat play down 18.7 percent in
December, January and February, the quarter which takes in the busy Western and Chinese
New Years. Hold percentage was roughly steady, compared with the 1999-2000 quarter. Win
was down 19.6 percent.

"It means that more than 95 percent of the drop in revenue is due
to lower volume, not luck," says Robin Farley, a gaming equities analyst with UBS
Warburg.

Farley detects a trend, "and not a very positive one."

"The last time we saw a drop of this magnitude was in ’98,
during the Asian economic crisis, so it’s significant," she says.

Certainly there is less willingness to deal credit at the some of the
dizzy levels of the past, a reflection both of the tough times in the Far East and the big
markers some casinos have gotten stuck with as a result. Says one highly placed Strip
executive, talking about the slowdown in high-end play, "I think it’s got more
to do with the inability of these players to pay their debts."

Maybe that’s more of a problem now than it used to be because the
milk of gambling credit is flowing freely elsewhere - on the East Coast, at Foxwoods, the
giant Indian-owned resort in Connecticut, and in South Africa, the Caribbean, Taiwan and
at places like Crown Casino in Australia, where owner Kerry Packer, himself a whale of
world-class girth, is offering huge discounts to lure high-limit action.

Only the largest U.S. companies - MGM Mirage and Park Place
Entertainment spring to mind - can compete in that league. But how high do they really want
to fly?

To hear some of the talk around town, margins are already way too tight
for comfort. Rio boss Jay Sevigny affirms that more casinos have entered the bidding for
high-limit gamblers, with the result that worldwide, the number of such players is
actually on the rise. "But with more casinos going after it," he says, "the
costs have increased tremendously."

In baccarat the ideal is to cancel, say, a $100,000 "player" wager
with an identical wager on the "banker" hand. That way the loser pays the winner
and the house happily collects its vigorish. It’s easier for the conglomerates to do this by laying action off on different properties. But their ability to control costs in this way is upset when single-property companies like The Venetian and the Aladdin aggressively chase the same big bettors.

"Today the customer has never had more power in determining the
profitability of their play," says Sevigny.

Then there’s those in the know, like Murren, who insist that the
nature of gambling is changing and that baccarat is not the most accurate measure of
high-limit action. "You have to take high-end table games in the aggregate," he
says. That would account for a lot of what the Strip is experiencing - like why table win
has held fairly steady in the years since the Asian crisis while baccarat win has dropped
- and why baccarat was the only major table game to experience a decline in win in the
last 12 months - and why baccarat, which accounted for 15 percent of total win in 1997,
the year the Hong Kong stock market crashed, now represents only about 11 percent.

The alacrity with which the Nevada Legislature passed a bill this
spring to change state law to permit private gambling salons would seem to reflect some
sense that the big-time gamblers just aren’t rattling the cash registers the way they
used to, and something needs to be done about it.

"The Middle Eastern and Arab players go to London where they have
private gaming," says one Strip insider. "Las Vegas never got much of that play.
I think this is more of a move to market to them."

"We know we’d have players playing at a very high level today
if they could play privately," says veteran European operative Derek Llambas, who
runs the Aladdin’s luxury London Club.

But while some are sharpening the harpoons and lowering the boats for
fear the whales are swimming too far, guys like Sevigny are steering clear in another
direction. Under the ownership of Harrah’s Entertainment, the Rio is marketing away
from the super-high end. The Tropicana likewise is out of the business. The Las Vegas
Hilton, long a high-roller haven, exited last year.

"The decline in high-end play also can be seen to represent more
of a rationalization of costs in the direction of a more normal level of play," says
equities analyst Harry Curtis of BancBoston Robertson Stephen.

"A lot of companies would like to shift their marketing if they
could, toward more stable domestic play. Most of us would prefer to do that," says
one high-ranking Strip executive. "But the reality is, you need all levels of play to
be successful. You can’t ignore any aspect."

So it will always be that somewhere on the Strip some multimillionaire
will push out so many chips on the flip of a card that his luck might wipe out months of
profits. In the future, few will see it because the drama will take place behind closed
doors, in a chandeliered room where a pit boss will be sweating even though the air is
cool. That much will never change.

As Curtis aptly puts it - "You live by the sword,
you die by the sword."